Stocks have been on a volatile ride recently.
After falling nearly 34% from February 19 through March 23, the S&P 500 has risen 25% but with chaotic swings lower and higher.
Amid this wild market, CNBC’s Jim Cramer says there are only two buckets of stocks to buy now, warning that index investing is not the way to go now.
“Stop circling the wagons around index funds here,” Cramer said.
Instead, Cramer says to pick those companies that are “big enough and deep-pocketed enough” to weather the economic storm caused by the coronavirus pandemic.
“Big businesses with good balance sheets are investible because we know eventually they’ll be just fine,” Cramer said. “And they’re especially investible when their stocks got hit on potentially fake news, like we saw with the Chinese data suggesting Gilead’s (NASDAQ: GILD) antiviral drug, remdesivir, doesn’t work on COVID-19.”
IBM reported better-than-expected Q1 profit this week, posting a 3.4% year-over-year increase in revenue to $17.6 billion in the quarter, and $12 billion in cash and marketable securities.
CFO James Kavanaugh said, “We had solid free cash flow generation, a strong balance sheet, solid investment-grade rating and very good access to the capital markets,” adding that IBM is well-positioned to weather the coronavirus recession given that it has no consumer exposure as it focuses solely on large enterprises, with a small percentage of small- and medium-sized business clients.
As for Union Pacific, earlier this month, Credit Suisse analyst Allison M. Landry slashed earnings across the railroad sector, writing in a note that “it is nearly impossible to forecast how bad volumes will be in the next quarter (or longer) – given the uncertainty of shutdowns.”
However, Landry did name Union Pacific as a top pick in the sector, and rates the stock an Outperform with a $168 price target – 10% higher than the price as of this writing.
“Our industry channel checks tell us that the company has been undertaking even greater cost reductions than the market may appreciate,” Landry said.
As for the second basket? Cramer says to go for companies that have been able to benefit from the coronavirus pandemic.
“These are companies that were made for this moment, the ones that thrive in this new stay-at-home economy,” Cramer said.
“If you want to invest right now, you have to own some stocks from the second bucket—the COVID winners—and whenever the market gets slammed, you can buy members of the first bucket, the big businesses with deep pockets,” Cramer said.